Winnebagel Corp. currently sells 36,000 motor homes per year at $54,000 each, an

Question

Winnebagel Corp. currently sells 36,000 motor homes per year at $54,000 each, and 14,400 luxury motor coaches per year at $102,000 each. The company wants to introduce a new portable camper to fill out its product line; it hopes to sell 22,800 of these campers per year at $14,400 each. An independent consultant has determined that if Winnebagel introduces the new campers, it should boost the sales of its existing motor homes by 5,400 units per year, and reduce the sales of its motor coaches by 1,080 units per year. Required : What is the amount to use as the annual sales figure when evaluating this project?

Explanation / Answer

Incremental cash flow by the introduction of new campers

CF = 22800*14400 + 5400*54000 - 1080*10200 = 509,760,000

This is the required new annual sales figure

Price (P) Before (Units) After (Units) Changes P * Q Motor homes 54,000 36,000 41,400 5,400 291,600,000 Motor Coaches 102,000 14,400 13,320 -1,080 -110,160,000 Portable camper 14,400 0 22,800 22,800 328,320,000 SUM = 509,760,000

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